Matter of Georgia Steel, Inc.
| Decision Date | 10 September 1982 |
| Docket Number | Bankruptcy No. 81-50966,Adv. No. 81-5199. |
| Citation | 25 BR 781 |
| Parties | In the Matter of GEORGIA STEEL, INC., Debtor. AMERON PROTECTIVE COATINGS DIVISION, Plaintiff, v. GEORGIA STEEL, INC. and Central Bank of Georgia, Defendants. |
| Court | U.S. Bankruptcy Court — Middle District of Georgia |
COPYRIGHT MATERIAL OMITTED
Jerome L. Kaplan, Ward Stone, Jr., B. Michael Byrd, Kaplan & Thomason, P.A., Macon, Ga., for debtor in possession.
Paul W. Bonapfel, Cotton, White & Palmer, P.A., Atlanta, Ga., for Ameron Protective Coatings Division.
G. McGregor Jordan, Jr., Harris, Watkins, Davis & Chambless, Macon, Ga., for Central Bank of Georgia.
The majority of the facts in this case were stipulated by the parties. On or about April 14, 1981, Ameron Protective Coatings Division (Ameron) obtained a judgment against Georgia Steel, Inc. (Georgia Steel) in the State Court of Bibb County, Georgia. The judgment, including interest and costs, was in the amount of $7,749.39. Pursuant to the judgment, execution issued and was recorded on the general execution docket of the Superior Court of Bibb County on May 6, 1981.
On August 10, 1981, Ameron filed an affidavit for garnishment in the State Court of Bibb County for $7,983.41.1 A summons of garnishment was issued by the clerk of the state court and subsequently was served on the Central Bank of Georgia (Central Bank) on August 13, 1981. On the date of service, Georgia Steel's general account at the Central Bank had an ending balance of $12,861.19, and there was no debt owed to the bank by Georgia Steel.
Upon service of the summons of garnishment, the Central Bank debited the general account of Georgia Steel for $7,973.91 and credited that amount to its general cashier's check fund.2 Georgia Steel was notified by the Central Bank that because of the garnishment, the bank was placing a hold on Georgia Steel's general account for forty-five days.3
After debiting the $7,973.91 and despite notifying Georgia Steel that a hold was being placed on its general account, the Central Bank continued to pay checks drawn by Georgia Steel on the general account. On August 26 and 27, 1981, the general account had a negative balance (overdraft), and from August 31 to September 18, 1981, the general account also showed a negative balance. After the Central Bank was served with the summons of garnishment, the bank continued to pay checks drawn on the general account even though it knew that payment would occasionally result in the general account of Georgia Steel being overdrawn.
On September 3, 1981, Georgia Steel filed its bankruptcy petition with this Court under Chapter 11 of Title 11 of the United States Code. At that time, Georgia Steel's general account at the Central Bank had a negative balance of $12,251.11.
On September 25, 1981, the Central Bank filed an answer to the garnishment action in the State Court of Bibb County. The answer stated that the funds the Central Bank held in its cashier's check fund as a result of the garnishment summons were not subject to garnishment but instead properly belonged to the Central Bank because of the bank's right of set-off. The answer further stated that the garnishment action had been stayed by the filing of the bankruptcy petition.
On or about September 30, 1981, Ameron filed a traverse to the Central Bank's answer in the garnishment action, asserting that the bank's answer was untrue or legally insufficient. The traverse admitted that the garnishment was stayed by the filing of the bankruptcy petition.
On October 1, 1981, Ameron filed a complaint with this Court, naming as defendants both the Central Bank and Georgia Steel. The complaint asserts that the $7,973.91 held by the Central Bank is cash collateral of Georgia Steel upon which Ameron has a lien.4 Ameron requests that the automatic stay of the Bankruptcy Code be lifted so that it may collect the $7,973.91 from the Central Bank. Alternatively, Ameron requests that Georgia Steel's use of the money be conditioned so as to provide adequate protection to Ameron. Ameron also requests that its lien on the $7,973.91 be preserved for the benefit of the estate, if the transfer is found to be a voidable preference. Finally, Ameron requests an award of costs.
Georgia Steel's answer to the complaint denies Ameron's contentions and asserts a counterclaim against Ameron. The counterclaim asserts that Ameron's failure to dismiss the garnishment proceeding was a violation of the automatic stay of the Bankruptcy Code. Georgia Steel requests that the Court issue a citation for contempt against Ameron and that the Court order Ameron to dismiss the garnishment proceeding. Georgia Steel also requests that the Court order Ameron to pay Georgia Steel's costs and attorney's fees.
Georgia Steel's answer also sets up a cross-action against the Central Bank. The cross-action asserts that the Central Bank is a custodian of the $7,973.91 that it has segregated as a result of the summons of garnishment, and asserts that the Bankruptcy Code requires the Central Bank as custodian to turn over the funds to Georgia Steel.5 Accordingly, Georgia Steel requests that the Court order the Central Bank to turn over the $7,973.91 to it as the debtor in possession. Georgia Steel also requests that it recover from the Central Bank costs and attorney's fees incurred in compelling the turnover.
The answer of the Central Bank to Ameron's complaint asserts that the Court lacks subject matter jurisdiction over this adversary proceeding because it is not related to Georgia Steel's Chapter 11 case. The Central Bank asserts that Ameron's complaint seeks to determine only whether the Central Bank or Ameron is entitled to the $7,973.91, and that therefore the issue does not involve the rights of the bankruptcy estate or the debtor in possession. The Central Bank also requests that it recover reasonable costs and attorney's fees from Ameron.
In its answer to the cross-action of Georgia Steel, the Central Bank asserts that it is entitled to set off the $7,973.91 against the $12,251.11 overdraft which existed in Georgia Steel's general account on September 3, 1981, the date Georgia Steel filed its bankruptcy petition. Additionally, the Central Bank requests that it recover from Georgia Steel the costs and attorney's fees incurred by the bank in defending the cross-action.
In answer to the contempt counterclaim of Georgia Steel, Ameron asserts that Georgia Steel is estopped to complain of Ameron's failure to dismiss the garnishment proceeding because Ameron had consulted with Georgia Steel about how to proceed in the garnishment case. Ameron therefore requests that the counterclaim be dismissed. Ameron asserts that it specifically inquired as to whether Georgia Steel considered Ameron's failure to dismiss to be a violation of the automatic stay of the Bankruptcy Code.
On November 25, 1981, Ameron was granted permission to amend its complaint. The amendment requests that the Court order Georgia Steel to begin proceedings to avoid the judgment liens of various creditors and to preserve those liens for the benefit of the estate. The amendment also requests that the garnishment proceeding be removed to this Court. Georgia Steel's answer to the amended complaint asserts that there are no avoidable liens because Georgia Steel was solvent on the date it filed its bankruptcy petition.6
The issues before the Court are varied. The Court must determine, among other things, whether it has jurisdiction over this adversary proceeding, whether continuation of the garnishment proceeding constitutes grounds for contempt, and whether any of the parties are entitled to awards of attorney's fees. The Court also must determine who is entitled to the $7,973.91. Determination of these issues also requires decisions on various subissues.
The Central Bank has asserted that this Court does not have subject matter jurisdiction. The United States Code gives a bankruptcy court jurisdiction over "all civil proceedings arising under Title 11 or arising in or related to cases under Title 11." 28 U.S.C.A. § 1471(b) (West Supp. 1982).
The Court is of the opinion that the instant controversy is related to Georgia Steel's bankruptcy case under Chapter 11 of Title 11. Georgia Steel as debtor in possession has asserted a claim to the $7,973.91, and whether its claim is superior to that of the Central Bank or Ameron relates to the bankruptcy case. In order properly to determine the claim of Georgia Steel to the $7,973.91, it is necessary for the Court to consider the claims of the Central Bank and Ameron, and thus the respective claims of the Central Bank and Ameron necessarily relate to the bankruptcy case. No matter which party wins, the interests of Georgia Steel are affected. Therefore, the Court holds that the instant controversy is related to the Chapter 11 case of Georgia Steel, and the Court has jurisdiction under 28 U.S.C.A. § 1471.
Georgia Steel asserts that Ameron violated the automatic stay of the Bankruptcy Code by its failure to dismiss the garnishment proceeding in the State Court of Bibb County. The Court is of the opinion that Ameron did not violate the automatic stay by its failure to dismiss the garnishment proceeding. The automatic stay provision of the Bankruptcy Code is found in section 362 of the Bankruptcy Code, and that section prohibits:
To continue reading
Request your trial